Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.
One of the reasons why I’m interested in the autonomous vehicle space is that I know our built environment is sticky. And because we’ve designed so much of it around the car, it’s hard to imagine this dependance going away anytime soon.
In fact, there’s a very real possibility that autonomy leads to further decentralization. That is typically what happens when we make it easier and cheaper for people to travel longer distances. They sprawl. So we ought to start preparing ourselves for the positive and negative externalities.
I’m not a deep expert on autonomous vehicles, but as an interested observer, Waymo appears ahead of Tesla in delivering this future. Waymo has been offering fully driverless rides since 2020 and Tesla is still at L2 autonomy, which means a driver needs to be present in the vehicle.
I hear from lots of people that their Full Self Driving (FSD) software is pretty good, but according to some studies, it can require human intervention as often as every 13 miles. This doesn’t necessarily mean that Tesla won’t be first to “solve autonomy,” but their Cybercab isn’t here yet.
If you’re interested in this topic, here is an article by Timothy Lee summarizing a discussion that he recently had with the co-CEO of Waymo, Dmitri Dolgov. Some of it is a little technical, but it does offer a comparison between Tesla and Waymo.
That is, how their approaches differ and what the future might look like.
Mexico City is all kinds of big. It is the largest metropolitan area in North America, the largest Spanish-speaking city, and broadly one of the largest megacities in the world. Because of this, it can be, you know, hard to move around.
I remember visiting the city for the first time when I was in elementary school, and it standing out to me that everyone had one day of the week when they were simply not allowed to drive their car. It was/is a form of load balancing. Imagine that. (I don’t know if this is still the case, or if it’s even more stringent today.)
I also remember visiting the city later on, when I was in grad school, and it standing out to me that their metro had women-only cars. This was and continues to be an attempt to try and minimize the amount of sexual harassment that takes place on transit. Again, it can be hard to move around Mexico City.
The city’s latest solution is one that has found success in other Latin American cities, such as Medellin, and that is: cable cars. Relative to subway or light rail, they’re inexpensive. They’re also good at navigating steep terrain, and their stations can be inserted into dense urban areas. This includes working-class neighborhoods who might otherwise have very limited mobility options.
For reasons like these, Mexico City has spent the last three years building three new cable car lines, the most recent of which opened just last month. The city now has the longest cable car line in the world. But more importantly, it has a new transit add-on that is moving up to 80,000 people per day.
This isn’t as much as rail. But that’s okay. The point of these lines is to bring more people closer in so that they can then connect to more services and other mobility options. And to do it quickly. Three new lines in three years is impressive. And from the sounds of it, it has transformed many people’s lives for the better.
Here are maps of the 3 lines, zoomed out a bit so that you can see how they fit into the city’s broader urban context:
I like the way that Scott Galloway describes entrepreneurship in this recent post about why he’s bearish on Tesla:
Entrepreneur is a synonym for salesperson, and salesperson is the pedestrian term for storyteller. Pro tip: No startup makes sense. We (entrepreneurs) are all impostors who must deploy a fiction (a story) that captures the imagination and attracts capital to pull the future forward and turn rhyme into reason. No business I have started, at the moment of inception, made any sense … until it did. Or didn’t. The only way to predict the future is to make it.
He then goes on to describe the difference between an entrepreneur and a liar:
This is not the same as lying. There’s a real distinction between an entrepreneur and a liar: Entrepreneurs believe their story will come true, as they are laser-focused on making it true. A liar, well, they know they’re misleading people with false data. Usually for money (i.e., fraud). This is where Tesla turns gray.
Scott continues to say things about Elon and Tesla. But that’s not the point of today’s post.
The point I would like to make is that real estate development is an inherently entrepreneurial endeavor. You need to be a salesperson and a compelling storyteller, because that’s the only way you’ll be able to create the future. And creating the future is what developers do.
We have spoken before about the importance of speed and rapid decision making in real estate development. But in practice, it’s obviously a little more complicated than just being good at making quick and high-quality decisions. And that’s because building a building is complicated and it requires teams of people, all working toward the same goal. Some of these people will be internal to your organization, but many will be external, which is a feature that further complicates matters. Because it means that, to varying degrees, there are critical path items — items that control your overall project schedule — that are not fully in your immediate control. This is one of the things makes development and construction so challenging.
Now, ordinarily, when a team is being assembled people will talk about their project experience, their systems and fancy tech, and perhaps some of the awards they’ve won because of their extreme talent. But what doesn’t often get talked about is the simplest and most basic of things: You want people who will do what they said they would do, when they said they would do it. In other words, you want responsive and reliable people. This sounds pretty banal, which is maybe why it so often goes unspoken, but it’s fundamental to the success of a project. The other nuance to this is that, most of the time, it’s less about the company itself and more about the individual human who will be working on the project. Is that person good?
Just being responsive, reliable, and on top of things goes a long way. These are the kinds of people you want on your team and it’s how you move fast.
Elevate Miami, which I wrote about last month, just announced a number of new speakers and, more specifically, a number of new high-rise development projects that will be discussed at the conference. They are (not an exhaustive list):
Dolce & Gabbana Residences, Miami
Mercedes-Benz Places, Miami
Aman and One High Line Residences, New York
Indian Creek Residences & Yacht Club, Miami Beach
Edition Residences, Miami
AGE360, Curitiba, Brazil
What should be clear from this list is that Miami is like a different planet. It is one of the places where the richest people in the world go to spend their money, much of it on real estate. Because of this, you can think of this real estate as a luxury good, which is why so many of them are now branded.
In economic terms, a luxury good is typically defined as a good where demand increases — more than what is proportional — as incomes rise. For example, if a person’s income goes up by 1%, but their demand for a particular thing goes up by 5%, then this thing would be considered a “luxury good,” as opposed to a “normal good.”
The technical definition is an income elasticity of demand that is greater than 1. More simply, this just means that as someone starts making more money, they will start spending a greater percentage of their income on luxury goods. This is in contrast to “necessity goods,” where it doesn’t matter how much money you make, you only need so much toilet paper, for example.
What all of this suggests is that as people from all over the world get rich, they are likely to want more branded residences in a place like Miami. However, the flip side of this dynamic is that as incomes fall, the demand for luxury goods should, in theory, also fall more than what is proportional. It works both ways.
So I’ll be curious to hear — from the developers at Elevate — how things are going right now. We’re at a time in the real estate cycle where everyone is rethinking their strategies. Or maybe, Miami truly is a different planet.
I was at a dinner recently where the topic of crypto came up. Only two of us at the table were full-on believers, and the rest were generally sceptics. So naturally, the two of us started talking about why we think crypto is important. But in moments like this, it always becomes immediately clear that crypto is really hard to explain in a succinct and compelling way. Like, I don’t know how to do it. Thankfully, venture firm a16z just released their latest State of Crypto report, and so here are a handful of interesting takeaways.
The number of crypto addresses continues to grow. Currently it’s at an all-time high of approximately 220 million, which roughly mirrors the adoption curve of the internet back in the 90s (log scale). It is, however, important to note that one crypto address does not necessarily correspond to one human being. For example, I have many different crypto addresses. So if you dig a little deeper, you’ll see that their net estimate is somewhere between 30-60 million real human beings transacting using crypto every month. This is the estimated active user base and it continues to grow.
The number of mobile crypto wallet users is also growing rapidly outside of the US, namely in countries like Nigeria, India, and Argentina. This is the result of a number of factors: population growth, mobile phone adoption, government support, inflation, and many others. I mean, since 2010, the Argentine Peso has lost basically 99% of its value against the USD. So of course you’d rather put your money somewhere else, such as in stablecoins.
Stablecoins are cryptocurrencies that have their value pegged to something else, such as a fiat currency. Today, they are one of the most popular crypto products and virtually all of them (more than 99%) are pegged to the USD dollar. This is viewed by some as an opportunity to strengthen the dominance of the US dollar at a time when it’s waning (see above). But more importantly, stablecoins already serve two important functions in the market: one, it’s as stable as the US dollar; and two, the cost of sending a stablecoin anywhere in the world is now basically free. Say goodbye to bank wire transfers.
It’s worth reiterating that a16z is a venture capital firm that is heavily invested in the crypto space. And so reports like this are naturally a form of marketing and a form of lobbying. Still, there’s a lot of great information in here that you can use to form your own opinions about the sector. It may not be succinct, but if you take the time, I think you’ll find it compelling.
Today, the government of Ontario announced legislation that, if passed, would require municipalities to receive approval from the province beforeinstalling any bike lane that would result in the removal of lanes for traffic. And in order to receive such an approval, municipalities would need to demonstrate that the proposed bike lane(s) won’t have a negative impact on vehicle traffic. To be clear, municipalities should still be free to remove lanes for other purposes — such as on-street parking — but not for bike lanes.
There’s a lot that can and will be said about this announcement. I’m also aware that I have my biases. I’m an urbanist. I live in a walkable neighborhood. And I enjoy biking, a lot — both to get around and for fun. So I think it’s clear that this announcement was designed to appeal to a specific audience: those that drive in from the suburbs and who are deeply frustrated. This is somebody doing something. Never mind that the new Eglinton LRT line isn’t open yet and nobody knows when it will actually open, look over here at these annoying cyclists.
The problem with this line of thinking is that it’s not going to fix our traffic. The way you make things better in a big global city with lots of demand for road space is to reduce car dependency. This is not a popular thing to say, but it’s the reality. And broadly speaking, this is done in two ways. One, you provide great alternatives. And two, you price roads accordingly, through things like congestion charges. Incidentally, this also creates a virtuous cycle, because the latter raises money for the former.
In many ways, we’ve been getting better at number one. In 2015, Bike Share Toronto recorded 665,000 trips. Since then, ridership has increased every year. In 2023, the network recorded 5.7 million trips. And this year, the number is expected to exceed 6 million. This is not nothing. This is a lot of people riding around on bikes, some of whom may have instead opted to drive or take an Uber. And I think there’s no question that this continual increase in ridership is at least partially supported by the fact that we’ve been creating more bike lanes.
That said, I think it’s clear that to continue to move forward as a city we’re going to need to start collecting far better urban data. We need to know things like how many cars and bikes are on every street and how fast they’re moving. (AI can do this, right? ) This way we can continually optimize for moving the most number of people as efficiently possible. And if it turns out that I’m wrong, and clamping down on bike lanes and having more people drive is the most efficient, I’ll of course accept that. Just show me the data.
It’s in Google My Maps and what he has done is pin every project according to status: under construction, under renovation, approved, proposed, and recently delivered. For each pin, you’ll also find information like the expected completion date, the use(s), the area, the architect(s), and photos. It is unbelievably detailed and, according to Google, it was last updated 8 hours ago.
Here’s the full map with all statuses shown:
And here’s what it looks like if you filter by only projects under construction:
It’s interesting, but not surprising, to note that the majority of construction projects seem to be taking place outside the boundaries of Paris proper. However, if you alternate to projects under renovation, it more or less flips, with most of the projects being within Paris:
This tells you something about the city.
Sometimes when I’m looking at or for information like this, I think to myself that I must be in the minority of people who are interested in tracking development projects with this level of detail. So I find it interesting that this map has been viewed nearly 300,000 times. Clearly, I’m not actually alone.
As we have talked about many times before, the best answer to this question is that it’s worth whatever money is left in your pro forma once you’ve accounted for everything else. This is what is called the “residual claimant” in a development model. And it means you start with your revenue, you deduct all project costs, including whatever profit you and your investors need to make in order to take on the risk of the development, and then whatever is left can go to pay for the land.
This is the most prudent way to value development land; but of course, in practice, it doesn’t always work this way. In a bull market, the correct answer to my question might be, “whatever most market participants are willing to pay.” And sometimes/oftentimes, this number will be greater than what your model is telling you, meaning you’ll need to be more aggressive on your assumptions if you too want to participate. (Not development advice.)
Given that determining the value of land starts with revenue, one way to do a very crude gut check is to look at the relationship between land cost and revenue. This is sometimes called a land-to-revenue ratio. And historically, for new condominiums in Toronto, you wanted a ratio that was no greater than 10%. Meaning, if the most you could sell condominiums for was $1,000 psf, then the most you could afford to pay for land was $100 per buildable square foot.
However, this is, again, a very crude rule of thumb. I would say that it’s only really interesting to look at this after the fact. Because in reality, things never work this cleanly. For one thing, there is always a cost floor. Don’t, for example, think you can buy land in Toronto for $80 pbsf and sell condominiums for $800 psf, because this will not be enough to cover all of your costs. You will lose money.
Secondly, there are countless variables that have a huge impact on the value of development land. Things like a high required parking ratio, development charges and other city fees, inclusionary zoning, and so on. All of these items are real costs in a development model, and so they will need to be paid for somehow.
Typically this happens by way of higher revenues (in a rising market), a lower land cost (in a sinking market), or some combination of the two. But in all of these cases, it means your land-to-revenue ratio must come down to maintain project feasibility. This is why suburban development sites typically have a lower ratio — too much loss-leading parking, among other things.
Of course, there are also instances where the correct answer could be a land-to-revenue ratio approaching zero, or even a negative number. In this latter case, it means your projected revenues aren’t enough to cover all of your other costs, excluding land. For anyone to build, they will require some form of subsidy. And this is basically the case with every affordable housing project. They don’t pencil on their own. (For a concrete example of this, look to the US and their Low-Income Housing Tax Credits.)
So once again, the moral of this story is that the best way to think about the value of development land is to think of it as “whatever money is left in the pro forma once you’ve accounted for everything else.” Because sometimes there will be money there, and sometimes there won’t be.
